Tax information

Tax Information - Buying & Renting

The Basics - Don't Get Caught Out!

When you start renting out property, you must tell HM Revenue and Customs as you may have to pay tax.

Property you personally own - You must report income from property rental of more than £2,500 a year on a Self-Assessment tax return. If it’s less than £2,500 a year, call the Self-Assessment Helpline (0300 200 3310) and ask for form P810.

Income Tax

You or your company must pay tax on the profit you make from renting out the property, after deductions for ‘allowable expenses’.

Allowable expenses are things you need to spend money on in the day-to-day running of the property, like: letting agents’ fees - legal fees for lets of a year or less, or for renewing a lease for less than 50 years - accountants’ fees - buildings and contents insurance - interest on property loans - maintenance and repairs to the property (but not improvements) - utility bills, like gas, water and electricity - rent, ground rent, service charges - Council Tax - services you pay for, like cleaning or gardening other direct costs of letting the property, like phone calls, stationery and advertising

Allowable expenses don’t include ‘capital expenditure’ - like buying a property or renovating it beyond repairs to wear and tear.

Furnished residential lettings

You can claim 10% of the net rent as a ‘wear and tear allowance’ for furniture and equipment you provide with a furnished residential letting. Net rent is the rent received, less any costs you pay that a tenant would usually pay (e.g. Council Tax).

Furnished holiday lettings

For furnished holiday homes, you may be able to claim: plant and machinery capital allowances on furniture, furnishings, etc. in the let property, as well as on equipment used outside the property (like vans and tools) Capital Gains Tax reliefs - Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders.

You can only claim these if all the following apply:

the property is offered to let for at least 210 days a year

it’s let for more than 105 days a year

no single let is more than 31 days

you charge the going rate for similar properties in the area (‘market value’)

If you own the property personally, your profits count as earnings for pension purposes.

Commercial properties

You can claim plant and machinery capital allowances on some items if you rent out a commercial property - like a shop, garage or lock-up.

Capital Gains Tax

You don't usually pay Capital Gains Tax if you make a gain from the sale of your only (or main) home. However, you may have to pay Capital Gains Tax if you make a gain on another property or land.

Private Residence Relief - You will not have to pay Capital Gains Tax when you sell you own home provided that it has been your only or main home for the whole time you've owned it and that you have only used it as your home, and not a business premises for example.

If you live in, and own, more than one property, you are able to nominate one property as your main home. Contact HM Revenue and Customs to tell them which property you which to nominate. That said you must make your nomination within 2 years of starting to live in more than one home - and indeed do the same whenever the number of homes you live in changes.

If you take any time away from your home, you are entitled to claim full Private Residence Relief if you've spent:

up to a year from the time you first bought it, perhaps because it needed to be renovated.

up to 18 months before you have sold it - provided that it was your main or only homes for some of the time you have owned it.

up to 4 years if you have had to work away from home.

That said you may not be granted full Private Residence Relief if:

the garden and grounds are larger than 5000 square metres

you have used part of your home only for business

you have let out all or part of your home

the main reason you bought the property was to make profit when selling it.

Council Tax

Very often it is the case that the tenant is responsible for paying the council tax, unless the tenancy states otherwise. That said households where everyone's a full time student don't have to pay Council Tax - and in fact should you receive a bill, you can apply for an exemption. To be considered a full-student your course must last at least a year and involve at least 21 hours study per week.

Additionally there are other properties exempt from council tax which include those:

occupied entirely by full-time students

occupied only by people aged under 18

used as armed forces accommodation

unoccupied and undergoing major repair work to render the property habitable, or structural alteration (exemption ends after 12 months)

unoccupied and part of the estate of someone who has died (for up to six months after the grant of probate)

unoccupied and repossessed, taken into possession by a mortgage lender or the liable person is a trustee in bankruptcy.

Beneficial to the swale based landlord is the knowledge that, should you prewarn the council that your property will be empty for at least 3 months following the exit of a tenant, then you too are equally entitled to apply for any possible exemptions from paying your council tax.